Tim Hughes puts the boot into the highs and lows of the online travel business (with an Australasian/Asian bias) with some blogging about consuming and loving travel thrown in.

Thursday, October 26, 2006

Scroo goes private, pockets hundreds of millions and blames suppliers

Flight Centre was once the darling of the Australian travel industry, stock market and corporate culture watchers. They were expanding around the globe, growing at 20% a year and had established a city, village, country, family etc culture that was the envy of retailers everywhere. Somehow it all started to go wrong. First Ansett went bust, then Qantas pulled commissions, the wrong CEO was appointed, the push in the US was failing, 9/11, SARS, domestic downturn, Santa Claus was late, the Tooth Fairy decentralised purchasing and dropped spending by 20% and Dr Seuss inc stopped booking long haul.

As a result of all of this Flight Centre has decided to go private. To de-list and join the private equity bonanza. This will make the founders - especially Graham "Scroo" Turner - hundreds of millions while maintaining a lot of control (btw the staff are not happy). As part of the transaction Turner says that pressure will be applied to suppliers to improve the margin decline from reduced sales per store and airlines butchering of commissions.

That all sounds possible but truth be told I think it is because they have executed poorly online. For such a strong brand and company with such strong cash flows and supplier volume Flight Centre has done a terrible job building an online business. It is not like they haven't had the chance. Every single one of the big online travel B2B and B2C players have been through the Brisbane headquarters of Flight Centre (me included) trying to sell a solution for launching, enhancing, growing, molding, making etc Flight Centre online. Flight Centre was always receptive and keen but the culture that made them strong offline made them weak online. Their strength in incenting individual stores to think independently and drive sales in a decentralised fashion impeded the ability to create a centralised online sales function - stealing sales from the stores. Flight Centre was caught in the classic offline retailer dilemma - how do I grow online and not cannibalise offline. Well...you can't.. and they should have made that decision quickly in 2001 and gone on to dominate online travel in at least Australia. Flight Centre spent too long wrestling with this dilemma and thus ceded the online space to the Wotifs, HotelClubs, Webjets etc of the world. Purchases of Quickbeds and Travelthere were not aggressive enough plays and once bought were under invested in both in technology and marketing.

You can't doubt the power of the Flight Centre brand but they had the chance to learn from the mistakes of American Express in the US and Thomas Cook in the UK and take their huge brand online and own the market. Going private looks like a great deal for the Flight Centre management, a good deal for shareholders but it is an admission of the failures of the Flight Centre online strategy.

You're so right about their once innovative and successful culture shooting them in the foot.

Even without the influence from their offline business, they struggle with their own bureaucratic nonsense between internal online business units.

From what I know staff turnover is high, and any time someone who knows what they are doing gets involved they are either moved, or become so disillusioned they move on to greener pastures. Then the cycle begins again. Meanwhile the company is still in 2000 with their technology.

Too many people have control over such little available technology. You know what they say - too many chefs spoil the broth ;)

Agree - It is a classic entrepreneur story. Turner and the Flight Centre Senior management deserve all of the credit for creating a global, profitable and at the time innovative company. And all of the blame for failing to adjust to no only the enormous number of warnings they had about online travel but also reductions in air commissions, changes in Australian international travel patterns and the reduction in 'high street' purchasing by Australians (in favour- tragically - of malls)

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